IKEA seeks more time to meet 30% mandatory local sourcing norm

IKEA has told the Indian government it will need more time to meet the 30% mandatory local sourcing rule because of its sustainability pledge.Rasul Bailay&Chaitali Chakravarty | ET Bureau | November 04, 2015, 08:22 IST

IKEA has told the Indian government it will need more time to meet the 30% mandatory local sourcing rule because of its sustainability pledge.NEW DELHI: IKEA has told the Indian government it will need more time to meet the 30% mandatory local sourcing rule because of its sustainability pledge, said chief executive Peter Agnefjall, who met Prime Minister Narendra Modi on Tuesday.

"Reaching 30% local sourcing within five years from store opening will be tough, a real challenge, but it’s definitely doable," he said in an interview to ETon his first visit to India as CEO. The company’s first store in India is likely to open in Hyderabad in 2017.

IKEA wants to use wood for the furniture that it sells from supplies that are being replenished and has been unable to find such raw material in India. "Creating industrial setups with our sustainability agenda takes time. We can get there by increasing our textile sourcing, more metal and plastic products as well as producing sofas and mattresses," he said.

"Long-term we aim for more than 50% (local sourcing) and for that we need access to sustainably sourced wood which today is a challenge," Agnefjall said. That’s why meeting the 30% norm within five of years of having made the first investment, in 2013, would be difficult. "We continue to discuss (with the government) on what will be the timeframe to live up to the 30% local sourcing ruling in order not to rush in. The idea is to build a long-term supply chain," Agnefjall said. "We are looking at finding sustainable sources of forest. At the moment, availability is low and this is one issue we have started to learn now."

The IKEA CEO said the company has "raised the issue that we need to have plantations—which they may be need to look into on how we can develop plantations in India—for cashew, for mango and for bamboo, so that we can get sustainable production."

IKEA sees India as one of its most promising markets for the future and has received government approval for its plan that calls for an investment of Rs 10,500 crore to set up 25 large stores, typically in the range of 350,000 sq ft, stocking thousands of items. IKEA has already acquired land in Hyderabad for its planned store.

Agnefjall said he’s aware that Indians seek value for money and would like services such as home assembly of IKEA’s flatpack furniture, something that it will offer.

"We do it in other markets and we will do it in India as well," he said. Agnefjall said Indians are proud of their homes and like vibrant colours and that IKEA would be natural fit for such a market.

He said the company is supportive of India's sourcing norms and will move toward achieving this. In most of its markets such as Europe, China and Russia, IKEA’s local sourcing is at 70% but getting there took time.